Encouraging Home Ownership Tops Akhoundi’s Agenda

EghtesadOnline: Despite his critics' assertions to the contrary, President Hassan Rouhani regards Abbas Akhoundi as the best choice to rescue the stagnant housing sector–a job he has been pursuing for the last four years.

News ID: ۷۷۸۳۶۵

15 August 2017

The roads and urban development minister-designate nominated for a second tenure has outlined his plan for the housing sector. His main focus is to make home loans more affordable for low-income families while adding rent-to-own schemes to the formula offering bigger loans for middle- and high-income groups so the market for expensive apartments heat up alongside that of small and cheaper ones, the government's official website reported.

Despite the fact that the ceiling for home loans rose significantly in the past four years,  which helped stop the recession from deepening, the market has only recently showed signs of a pre-boom phase.

These policies helped push up residential deals in Tehran by about 5% year-on-year during the year to March 20, 2017, but lack of rent-to-own schemes and inconsistency between home mortgage installments and homebuyers’ affordability prevent the market from making a full recovery, according to Financial Tribune.

According to the Persian economic daily Donya-e-Eqtesad, Akhoundi has mentioned in his plan that the monthly repayment of home loans will at least drop by 10% and in cooperation with monetary policymakers, the figure could decrease by 23% and the repayment duration would be prolonged.

Currently, the monthly repayment for a 1.6-billion-rial (($42,100) home loans is more than 17 million rials (($447) while the figure stands around 10 million rials ($263) for no-deposit 600-million-rial ($15,800 ) loans.

The Ministry of Roads and Urban Development, as the body responsible for the country’s housing sector, has managed to implement an eightfold increase in the ceiling of home loans in the past four years and now the plan is to improve the procedure for allocating these loans.

Rent-to-Own Schemes

The ministerial nominee also emphasized the entry of rent-to-own firms in the housing sector to meet the demand of high-income families aiming to buy bigger and more expensive homes, for which the regular home loans cannot be of much help.

Therefore, the ministry is determined to clear the way for banking and non-banking leasing firms to enter the market, since a notable number of vacant homes both in Tehran and Iran consists of big and expensive homes and the market for those kind of residential units has been the worst-performing due to their exorbitant prices and the incapability of buyers in repaying the hefty mortgages.

According to the blueprint, the minimum amount of home loans, which will be offered by rent-to-own firms, would be 2 billion rials ($52,600).

However, policymakers should be careful about their strategies and consider the balance between supply and demand in the allocation of these loans.

According to Bank Maskan, it can allocate up to 90,000 loans per year during the year to March 20, 2018, more than 150,000 applications have been filed and currently each month about 15,000 new ones are added to the list.